It sounds perverse, but Royal Bank of Scotland has been doing so well that people are beginning to ask: what could go wrong? The financial powerhouse that pulled off a daring £22 billion hostile takeover bid for NatWest has so far won accolades from around the world.

Fred Goodwin, the chief executive, has been nominated by Forbes magazine as its man of the year, and RBS regularly comes out at the top of commercial and banking league tables.

Valued on the London stock market at a staggering £50bn, it has been described as a British version of America's Citigroup, the giant financial supermarket headed by Sandy Weill.

But reservations are creeping into some assessments of the group's prospects, even though the shares are still touted as a 'buy' by many City broking houses.

Mark Thomas, a banking analyst at Fox Pitt Kelton, admits: 'I am one of the few bears. From the standpoint of business mix, there are above-average risks attached to RBS.'

Thomas is by no means alarmist, but he points out that, compared with other UK banks, RBS has a large proportion of its loan book tilted towards lending to companies and relatively little exposure to mortgages. However, that may prove a blessing in disguise if there is a domestic housing crash or unemployment shoots up and sour debts increase.

But there is no getting away from the fact that RBS has been in the news of late because it is involved in one way or another with all kinds of troubled firms. There is Le Meridien, the luxury hotels group fighting to stave off bankruptcy in the UK, while across the Channel, Goodwin's bank has lent money to Alstom, the cash-strapped French engineering group which is struggling pay down its debts.

Thomas remarks: 'RBS has a "can-do" culture; they take on propositions that other banks won't touch. On the other hand, everything is on the balance sheet, so there is transparency.'

Is Thomas alone in expressing a degree of caution about RBS? Well, no. Even RBS enthusiasts such as John Tyce, the veteran banking analyst who works at French broker SG Securities, says he has a few concerns.

'They have been putting on lending growth faster than many of their rivals; they have expanded into sectors such as commercial property, which others have avoided - not surprising as this is an area where banks such as Barclays got their fingers burnt during the recession of the early 1990s.

'In general terms, they have gone in for more innovative financing deals than their competitors.'

Last year, the bank reorganised its private equity division after going on a £700 million buying spree; some investments had run into trouble after it appeared to make a conscious decision to enter the European league of big company buyouts.

In some ways, RBS operates like a large investment bank, offering corporate customers a one-stop shop for its diverse services. But retail and corporate lending are the mainstay, and a spokesman said that there was 'no intention to enter areas such as equities trading or the like'.

Not that analysts such as Tyce are anxious about RBS's risk management controls or its ability to withstand the odd company failure. 'This is a company that has managed double-digit earnings growth at a time when bank margins are under pressure,' he says.

With interest rates low and mergers between the majors facing regulatory hurdles in the UK, RBS, like others such as HSBC, have expanded abroad of late, chiefly in the US, in order to boost growth. Now there are rumours that the Scottish bank is eyeing up Sovereign, a Philadelphia-based institution estimated to be worth $7bn.

More intriguingly, City traders suggest that Goodwin may have a crack at Abbey National, which is still reeling after reporting a £1bn loss earlier this year. However, such a move would almost certainly attract the attention of the competition authorities.

Whether RBS really goes for another major acquisition remains to be seen. Certainly, there is no shortage of drive and aggression when it comes to the bank's top management. 'People like Sir George Mathewson [chairman], Good win and Larry Fish [head of RBS's Citizens bank in New England] do not suffer fools gladly,' says Tyce.

When RBS took over NatWest in March 2000, the differences between the banks' cultures soon became apparent. Said an insider: 'The Scots could not have been more different from their opposite numbers at NatWest, where the boardroom had a patrician, almost genteel, aura. Goodwin's mob used to tell NatWest's managers to eat a plate of red meat for breakfast to become more aggressive; it was that bad!'

RBS has outperformed its rivals, both in terms of share price performance and profitability, and has drawn applause from investors for not getting too involved in the high street price war for products ranging from current accounts to credit cards.

But in a low interest rate environment, there are going to be limits to the extent to which RBS can continue to generate the returns shareholders have become accustomed to. It would seem that Goodwin and his team long ago decided to forestall the problem by buying growth via overseas expansion.

Purchases costing hundreds of millions of pounds rolled thick and fast even before NatWest was fully integrated. The latest was Churchill Insurance, which RBS merged with its Direct Line insurance subsidiary; the asking price was £1.2bn. Two years earlier, it swooped on Mellon Financial, the Pittsburgh-based retail bank, bolstering its Citizen's banking operations. In between, there have been a handful of smaller acquisitions such as Medford Bancorp, a small Massachusetts savings bank.

Of course, there is nothing wrong with aggressively expanding abroad in order to offset a lacklustre trading environment in the UK. But, as one broker points out: 'A real test for Goodwin and his team will be when buying opportunities diminish, and RBS will need to show that they have better bankers and more attractive products than the rest of the pack. It's horribly competitive out there.'

But for now the City is expecting another set of bumper interim figures in August, as well as full-year numbers that should easily exceed the £6bn that it recorded in 2002.

Commented one observer: 'This is a big, lean machine; amazingly efficient and entrepreneurial at the same time. No one expects it to stumble now.'